The Mauritian Economy Defied Predictions Of James Meade Economics Essay

Few Sub-saharan African states have managed to accomplish high criterions of life over the past two decennaries. Mauritius has been a noteworthy exclusion. With no natural resources, a little domestic market and exposure to external dazes, Mauritius exhibited a series of features really typical to the remainder of Africa viz. a mono-crop economic system, exposure to footings of trade dazes, high population growing rate, cultural tensenesss exacerbated by high income and wealth inequality.

Defying the anticipations of Nobel Prize receiver James Meade, who famously predicted hapless development chances for Mauritius back in 1961 due to its exposures to both conditions and monetary value dazes and deficiency of occupation chances outside the sugar sector, Mauritius has transformed itself from a hapless sugar economic system into a state with one of the highest per capita incomes among African states.

Today, the little island state is one of Africa ‘s most comfortable and stable economic systems and is considered an economic success narrative. For statement ‘s interest, between 1977 and 2009, existent GDP in Mauritius grew on norm by 5.1 per centum yearly, compared with 3.2 per centum for sub-Saharan Africa.

3.1 The Mauritanian Economy

Mauritius is a little island developing province with limited resources and a distant geographical location considered unfavorable. Since its independency in 1968, Mauritius has developed from a low-income glandular fever harvest economic system to a middle-income comparatively diversified export-oriented economic system.

In the early 1960 ‘s, Mauritius embarked on a plan of variegation and adopted import permutation policies with the initial accent on revenue enhancement freedoms, long-run loans at favourable rates and protective import responsibilities and quotas. The purpose was chiefly to battle unemployment, raise criterion of life and alleviate poorness.

However, import permutation did non convey the benefits expected owing to the little size of the domestic market, limited resource gifts and proficient know-how. The endeavors were unable to profit from economic systems of graduated table given the little size of the local market. Furthermore, import permutation policies failed to turn to unemployment, which reached 20 % in the late 60 ‘s.

In the early 1970 ‘s, Mauritius switched to an outward-looking export-oriented scheme. The constitution of the Export Processing Zone strategy, designed to promote the puting up of labors intensive export oriented fabrication endeavors, aimed at assisting to stifle the turning job of unemployment, every bit good as to open up farther the economic system and benefit from the discriminatory entree to the European markets under the different Lome Conventions ( and now the Cotonou Agreement ) . The governments prudent direction of the economic system and their outward-oriented policies placed Mauritius on a sustained growing way. Launched with the start-up capital of the sugar sector, the EPZ sector has concentrated largely on fabric and textile-related merchandises. Mauritius seeks to function as a span from Asia to Africa, Europe and the United States: in the 1980s, companies from Taiwan, Hong Kong, and Singapore settled in the state ‘s economic processing zones ( EPZs ) , and were joined in 2007 and 2008 by companies from mainland China. For the past three decennaries, the industry have attracted FDI from assorted states, created new employment chances and strengthened the fabricating base of the economic system.

The touristry sector besides emerged as a serious economic pillar by lending to foreign exchange net incomes of the state and by being an of import generator of employment. A scope of investing inducements were provided to hike the development of the touristry sector in footings of financial inducements and fiscal support for hotel development and direction services. The labor-intensive export-oriented growing scheme was hence powered by three chief economic sectors, viz. sugar, fabric merchandises and touristry.

The variegation scheme was farther expanded in the 1990s with the consolidation of the fiscal services sector into commercial banking, insurance and planetary concern. In recent old ages, information and communicating engineering ( ICT ) , in peculiar concern procedure outsourcing, and the seafood hub have emerged as of import sectors of the economic system. From 1991 to 2010, the economic system enjoyed an mean one-year existent growing of 4.9 % . To farther diversify the economic base of the island, the authorities is actively encouraging development in the undermentioned sectors:

Mauritius is a reasonably good diversified export oriented economic system with agribusiness, fabric, touristry and fiscal services as prima sectors. However, a gradual displacement from agribusiness to the service sectors has been observed. Today, the services sector makes the largest part towards GDP and towards entire employment. The portion of the agricultural, hunting, forestry and fishing sector in GDP which was 6.1 % in 1999 went down to 4.3 % in 2009. The fabrication sector besides experienced a autumn, from 23.9 % in 1999 to 19.5 % in 2009. On the other manus, “ Hotels and eating houses ” , a major constituent of the Tourism sector, witnessed a rise from 6.9 % to 7.3 % during the same period.

Albeit the successful growing records, there is turning concerns as respects fight and sustainability of growing. The traditional Mauritanian labour-intensive exports is being challenged by new rivals. Productivity is non increasing fast plenty to maintain gait with rewards that have been lifting as a consequence of near full employment, therefore gnawing fight. Government policies are taking at diversifying towards more capital-intensive production and higher value added goods.

The acceleration of the growing rate in the 1980s is the consequence of the macroeconomic reforms in response to drawn-out balance of payments and financial problems. Following the reforms, Mauritius experienced steady growing, low rising prices, and increased employment. GDP per capita, meanwhile, increased about septuple between 1976 and 2008, from less than $ 1,000 to about $ 7,000 ( figure 2 ) . At the same clip, consumer monetary value rising prices in Mauritius has remained in the low individual figures through the 1990s and 2000s ( figure 3 ) .

The steady growing way of the early old ages of the period under reappraisal was due to the sugar roar of the early 1970 ‘s and the freshly established EPZ pulling foreign investing. During that period, GDP grew at an norm of 9 % per twelvemonth. However, the roar was short lived with sugar monetary values falling by 50 % and the first oil daze of 1973-74 get downing to impact on stray Mauritanian exporters and the little but promising touristry industry. Year 1979 saw the devaluation of the exchange rate by 30 % , a rise in involvement rate, decrease in nutrient subsidies and pay additions held below rising prices. Between 1979 and March 1980, the island was hit by cyclones, sugar production tumbled and GDP fell by 9 % . The lone encouraging factor during that period was a autumn in rising prices.

The highest rate of rising prices Mauritius witnessed since its independency was in October 1980 at 42 % . This was due to the deteriorating economic state of affairs following increasing oil monetary values in the late seventiess coupled with inauspicious conditions conditions damaging nutrient harvests. In the same period, the island adopted its first Structural Adjustment Programme and the rupee was devalued by 22.9 % in October 1979. The direct impact of the devaluation was seen on import monetary values which sky rocketed.

Macroeconomic policies have contributed to incorporating rising prices. On a calendar-year footing, rising prices ( measured by alterations in consumer monetary values ) was maintained at under 6.5 % per twelvemonth boulder clay 2006, when it rose to 8.9 % . The chief subscribers to this addition include higher oil monetary values ( ensuing from addition in universe monetary values and the debut of the Automatic Pricing Mechanism, higher monetary values of alcoholic drinks and coffin nails ( ensuing from the addition in excise responsibilities ) and of some other merchandises ( ensuing from the decrease of subsidies for rice, flour, and staff of life ) , addition in cargo costs and depreciation of the Mauritanian rupee. During 2007, rising prices increased farther to make 10.7 % in June ( on a annual footing ) , the highest in over a decennary. Harmonizing to the BOM, this was due to the second-round effects of high oil and trade good monetary values, the depreciation of the Rupee, and the addition in excise responsibilities.

3.2 Trade Performance

Trade remains an of import characteristic of the Mauritanian economic system in visible radiation of the fact that it has a little domestic market and limited natural resources viz. land. The island is known to hold been running ware trade shortage which has been offset at times by excesss on the services history.

The majority of Mauritanian ware exports ( viz. 70 % of the entire value ) is accountable to fabricating merchandises. Though diminishing in portion, vesture remains the chief manufactured export ( from 57 % in 2001 to 36 % in recent old ages ) . Sugar has remained the chief agricultural export, lending about 16 % to entire ware trade.

Imports every bit good continued to be dominated by manufactured goods. Leading imports include machinery and conveyance equipment, radio/television transmittal setup, fabric and chemicals. The portion of fabrics has decreased from 20 % in 2001 to 7 % in recent old ages. However, fabrics remain an of import import point.

The European Union is the major finish for most of the Mauritanian export. The majority of Mauritanian sugar and a big portion of its fabrics and vesture are destined to the EU. The UK remains the major individual finish followed by France and the US.

On import evidences, the EU supplies around one tierce of the entire value of Mauritius ‘ ware imports. Other major providers include China, South Africa, France, India and Germany. The portion of Middle East states ( Bahrain, Saudi Arabia, and United Arab Emirates ) has well increased, reflecting chiefly the addition of oil monetary values.

3.3 Trade Openness

Mauritius is an active participant of the many-sided trading system and member of assorted economic groupings and trade understandings. Engagement in regional understandings is important for a little island state like Mauritius for the undermentioned grounds:

Allows the development of its comparative advantages and economic systems of graduated table.

Improves the island ‘s competitory border.

Allows the variegation of its scope of exports.

Facilitates its integrating into the universe economic system.

However, challenges remains for Mauritius has to guarantee consistence between the national reform docket and engagement in a battalion of trade understandings, with different geographical coverage, liberalisation docket, commissariats and ends.

To Sachs and Warner, the cardinal determiners to a state ‘s long-term growing is its trade policies. In consequence, in the 1970 ‘s and 1980 ‘s, Mauritius had a reasonably protected economic system ; the mean rate of protection being high and dispersed. This is depicted by the instead hapless openness ration of the early old ages of the period under reappraisal. When the state started to open to the universe, a net betterment of the ratio was noted.

3.4 Exposure to external dazes and policy responses

An built-in portion of economic policies in Mauritius, trade policies are aimed at bettering the life criterions of the population and seeking to accomplish full employment. This aim is projected to be achieved through the execution of sound macroeconomic policies, investing in public substructures, easing the making concern environment and farther opening up the economic system. Trade policies have, for over two decennaries, shaped the state ‘s industrial development and contributed towards sustained growing. Mauritius was able to fall in in the ranks of the “ freshly industrialised economic systems ” .

3.4.1 Agricultural sector

Today, agribusiness remains an of import sector given its portion in exports and revolves chiefly around sugar. However, the of all time diminishing sugar monetary values have seen the execution of actions to reconstitute the sector and guarantee its long-run viability. Those actions seek to advance alternate goods associating to flog production.

In fact, much of the sugar cane production in Mauritius has been exported to the EU under the discriminatory footings of the ACP-EU Sugar Protocol. ACP sugar-producing states were granted preferable entree to the EU market, with one-year quotas and guaranteed monetary values. As portion of the passage to the new government defined by the Economic Partnership Agreements ( EPAs ) , ACP states experienced a diminution in their guaranteed minimal monetary value for sugar to the EU. Over four old ages to 2009, the monetary value fell by 36 per cent.

Mauritius is the most affected by the falling monetary value paid by the EU for sugar. At 507 000 metric tons, Mauritius enjoyed the largest quota under the Sugar Protocol. Sugar exports to the EU entirely contributed 17 per cent of the state ‘s foreign exchange net incomes and up to 4.5 per cent of gross domestic merchandise.

The losingss associated with the new government are expected to hold a important impact on Mauritius, peculiarly given that the gross that had been procured from the Sugar Protocol was of import for exciting economic development, advancing variegation and supporting services throughout the state. It is likely that the economic system will travel through structural alteration as the agricultural sector moves off from its about sole dependance on sugar and becomes more diversified.

The Multi-Annual Adaptation Strategy ( 2006-2015 ) is the Government of Mauritius ‘s response to the alterations in the Sugar Protocol, to assistance in the version procedure and take advantage of the bundle of “ attach toing steps ” offered by the EU to ease the passage to the new trading government. It seeks to protect the long-run viability and sustainability of the sugar industry and guarantee that it can go on to do an of import economic and societal part to Mauritius.

There are several elements associated with the MAAS designed to assist the industry and its workers adapt to the new trading world and safeguard a hereafter for the sector. Key among these are a focal point on ways to ( i ) cut down costs of production ( through mill closings, centralisation, and restructuring of the work force ) , ( two ) generate extra gross ( such as through increasing value added ) , ( three ) expeditiously use byproducts ( such as for bring forthing renewable energy ) and ( four ) contribute to poverty relief ( by set uping voluntary retirement and re-training programmes ) .

By prosecuting these policies, the Government hopes to transform the sugar industry into an industry that moves off from bring forthing natural sugar towards bring forthing several types of sugar ( natural, particular, industrial and white ) , and besides produces electricity from bagasse and ethyl alcohol from molasses. Once implemented, the policy should ensue in higher-value merchandises, sufficient production to run into all of Mauritius ‘s trade committednesss, and reduced dependance on imported dodo fuels by increasing the part from sugar cane to national electricity production and increasing the production of ethyl alcohol.

3.4.2 Manufacturing sector

The development of fabric and vesture, the chief industry, was favoured in the past by penchants under the Multifibre Arrangement ( MFA ) , and discriminatory entree to cardinal markets such as the EC and the United States. Mauritius fabrics and vesture industry has been confronting many challenges, such as many-sided liberalisation, which has resulted in eroding of trade penchants ; lifting production costs in Mauritius ; and the outgrowth of low-priced bring forthing states. In expectancy of the many-sided liberalisation of the industry in January 2005, most of the major Hong-Kong-owned endeavors ( which dominated the industry in Mauritius ) ceased operation: between 2001-06, employment in the industry was reduced by 27,000 occupations. This explains the hapless public presentation of both exports and growing of the EPZ subsector.

Several stairss have been taken to prolong development of the fabric and vesture including restructuring of endeavors ; publicity of perpendicular integrating to increase value added, every bit good as high value merchandises ; upgrading accomplishments ; bettering entree to finance ; and easing concern operations.

With the stage out of the Multi Fibre Arrangement, Mauritius has to vie with major fabrics manufacturers like China. The new LDC strategy proposed by the US to widen the AGOA type benefits to all LDCs pose a major menace to Mauritanian exports to the US, peculiarly for garments. With the application of a coefficient of 8 in a Swiss expression to cut down duties in the context of the Doha Development Agenda, the penchant border for garments will fall from an norm of 12 % on the EU and US markets to below 5 % . For transcribed tuna, which Mauritius exports, the penchant border will drop to around 6 % from a high of 24 % .

3.4.3 Tourism

The Tourism Industry has part extensively towards foreign exchange net incomes, GDP growing and employment creative activity. With the impact of the convulsion experienced in the international fiscal markets in 2008, the sector recorded an addition of merely 2.6 % in tourer reaching as opposed to a 15.1 % growing in reaching in 2007, followed by a negative growing of 6.4 % in 2009. As at 2009, the touristry sector contributed to 8.9 % of GDP ; created 26,922 direct occupations and generated Rs. 35,693 million ( $ 1190 million USD ) as touristry grosss.

Mauritius has performed good in developing a typical signifier of comparatively high-end touristry. Growth in tourer reachings has outpaced that of many of our rivals. Presently, the purpose is to go on that growing with a visitorsaˆY mark of two million tourers a twelvemonth by 2015. To accomplish the set mark, the figure of hotels and room capacity has evolved well over the old ages to provide for the ever-increasing tourer reachings.

Mauritius has been taking steps since early May 2008 to buffer the economic system from the hazards of impairment in the universe economic system. The chief policy steps taken since May 2008 are as summarised in the tabular array below.

The 2008/2009 Budget voted an sum of Rs. 1.8 billion [ $ 430 M ] for eventualities to provide for any extra injection required to back up public disbursement and demand.

July 2008

Full execution of the recommendations of the Pay Research Bureau on reappraisal of wages and conditions of employment in the civil service therefore shooting an extra sum of Rs 1.5 billion [ $ 50 M ] in the economic system.

October 2008

Decrease in Repo Rate by 50 footing points from 8.25 to 7.75

Decrease in Cash Reserve Ratio ( CRR ) from 5 % to 4.5 %

Decrease in the minimal CRR on any peculiar twenty-four hours from 4 % to 3 %

Introduction of a Particular Foreign Currency Line of Credit by the Bank of Mauritius aggregating $ 125 M so as to help Bankss meeting troubles due to non-availability or insufficiency of foreign exchange installations from usual beginnings.

Reappraisal of the Automatic Price Mechanism ( APM ) to enable monthly, alternatively of quarterly, reappraisal of crude oil monetary values so that local retail monetary value aligned with international monetary values of crude oil merchandises.

major capital undertakings with focal point on fast-tracking and frontloading of bing public substructure undertakings,

new investings in public substructure,

speed uping private sector investing,

bettering concern clime,

edifice human resource capacity, and

back uping vulnerable sectors such as the SMEs, export oriented & A ; fabrication and touristry.

Puting up of Particular Committees to fast track execution of the Additional Stimulus Package and to unlock private investing.

Decrease of the Repo Rate by 100 footing points from 7.75 to 6.75

March 2009

Decrease in the Repo Rate by 100 footing points from 6.75 to 5.75

May 2009

Presentation of new budget built on the Additional Stimulus Package to sit out the planetary crisis. Some steps to heighten fight and concentrating on salvaging occupations, protecting people, and fixing for recovery are as follows:

Injecting an extra Rs 2 billion in the Saving Jobs and Recovery Fund ( SJR FUND ) , to supply for a new micro-enterprise funding strategy for adult females to be operated by the National Empowerment Foundation in coaction with the Ministry of Women and the Mauritius Post and Cooperative Bank.

Rescheduling of loans by the Development Bank of Mauritius for SMEs which were serving their loans prior to the crisis in September 2008 but so faced hard currency flow jobs.

Puting up an Emergency Export Credit Insurance strategy for SMEs every bit good as big endeavors in all sectors until December 2010.

Operating a strategy to help little hotels and eating houses to better, and heighten productiveness and fight under the SJR Fund.

Puting up of the Mauritius Business Growth Scheme ( MBGS ) – to advance concern growing in SMEs. Eligible houses will have funding to back up their concern growing on a cost-sharing footing

Introducing a mentoring service by National Empowerment Foundation to guarantee sustainability of little concerns initiated largely by adult females

Under the Food Security Fund, debut of a Food Crop Insurance Scheme for little nutrient harvest plantation owners, a Seed Potato Purchase Scheme to promote the production of murphies by little plantation owners and an Onion Seed Purchase Scheme.

Allowing Rs 100 million from the MID Fund to co-finance a Rs 280 million programme with the CEB, CWA and WMA ( public-service corporation bureaus ) to clean up the societal lodging estates and rehabilitate the H2O, electricity and waste-water substructure

– The steps, inter-alia, include, escalating attempts to consolidate the traditional and emerging economic pillars, so as to open concern chances and farther stimulate occupation creative activity, in peculiar for adult females, continue bettering the making concern environment to increase investing ; puting in human resource development, scientific discipline, engineering and invention to construct the competitory competency that Mauritius needs to be among the fast globalisers ; speed uping program to construct the substructure of tomorrow.

– On the societal forepart, the 2010 budget provides for extra attempt towards obliteration of absolute poorness, proviso for every household with a nice home, presenting more and better wellness attention, giving more societal protection to our kids and adult females, fixing for the challenges of an ageing population and raging up support for our seniors and consolidating the advancement made in giving greater entree to instruction, from pre-primary to third degrees.

– In respect to the Additional Stimulus Package ( ASP ) , Government policies have been instrumental in covering with the crisis in footings of salvaging occupations, forestalling closings of houses and protecting people. However, given the current international economic context, the issue scheme needs to be carefully managed. Consequently authorities has decided to keep the Additional Stimulus Measures until December 2010 including the financess committed for a stimulus bundle for Rodrigues.

Trade liberalisation has proven to be good to the economic system through consistent betterment of the growing rate over the old ages. However, increased openness has undermined the economic exposure of the island.